THIRD WORLD DEBT For most of the Developing countries, the need to exploit their resources, increase their GDP up to an acceptable level and overcome their inability to cope with the necessary imports to cover domestic wants, caused a major increase in their external debt. Prior to the Third World debt crisis in 1982, Developing countries managed to keep the levels of external borrowing at low points, mainly due to the fact that the loans they were receiving had comparatively low interest rates, and their purpose was to increase imports of capital goods. Additionally, their mail loaners were Developed countries and financial institutions, such as the World Bank. However, in the period between 1982 and 1989, a major increase in Third World counrties’ external debt led to economic difficulties and even high political instability. During the 20-year period between 1970 and 1989 the external debt of Developing countries grew from $68.4 billion to $1283 billion, an increase of 1846 % . The main reasons for which Third World Debt rose dramatically during the 80’s have their roots to the late 70’s.The most significant ones are:Rise in oil prices. It led most of the OPEC countries to stock their oil surplus in order to face the crisis and benefit from increasing demand. Therefore, profit-purpose banks were encouraged from governments to grant loans to LDC countries, in order to avoid the effects of the increase in oil prices. A significant number of Developing countries took advantage of this effect by borrowing uncontrollably, mainly due to the lack of purpose criteria, and for both development and non-development purposes.International Economic recession. During the end of the 70’s,governments in western countries, including the United Kingdom, decided to follow monetary policy, including high interest rates, in order to fight inflation. This forced many other countries...
